The term "money laundering" has been around since the heydays of the likes of Al Capone. But what exactly is money laundering and what makes it a crime?
"Money laundering" is a term that gets thrown around all the time on the news, but what is money laundering exactly? Basically, it's what it sounds like: "cleaning up" illegally obtained money so that it can be used in the legal economy.
Money laundering plays a huge part in global crime. No one knows exactly how much is laundered every year, but organisations estimate it to be in hundreds of billions of dollars.
According to Business Crime Solutions, the term "money laundering" originated from the Italian mafia and the likes of Al Capone. These criminals were said to have purchased laundromats to mix their illegal earnings from brothels, gambling, extortion, and bootleg liquor sales with legitimate business sales.
Al Capone was so good at covering his tracks that when he was put on trial, he could only be convicted of tax evasion. And according to this TEDEd video, Al Capone wasn't the first to engage in money laundering.
In ancient times, merchants would hide their profits to avoid paying taxes, and pirates would try to sell their bounty without disclosing how they obtained them.
Now with offshore banking, virtual currencies, the darknet, and the global market, money laundering schemes are now more complex.
Most money laundering schemes today have three steps, as detailed by TEDEd:
This step is where criminals convert illegally-obtained money into assets that seem legitimate. They often deposit money into a bank account registered to an anonymous corporation or a professional middleman. Because criminals are introducing massive wealth into the financial system, this step is where authorities often catch money launderers.
This uses multiple transactions to place even more distance between the dirty money and its source. This could entail transfers between multiple accounts, or purchases of properties like art, expensive cars, and real estate.
Casinos are also popular venues for layering. Money launderers could work with casino employees to rig games. Casino chains often let you make your gambling balance available in other countries, and criminals can take advantage of this.
This is the step where "clean money" re-enters the legal economy, benefiting the criminal. They could invest their money into a legitimate business, create fake invoices to claim payments, or even start bogus nonprofits so they can place themselves on the board of directors and give themselves a huge salary.
We hope this article helped you understand what is money laundering.
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